Compliance and Anti-Avoidance

National Minimum Wage

For the National Minimum Wage to be effective, it must be adequately enforced. For 2007/08, the Government will increase by 50% the resources allocated to tackle non-compliance and raise penalties for the seriously non-compliant.

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Managed Service Company Schemes

The Government is taking action to tackle Managed Service Company (MSC) schemes. The MSC will be obliged to operate Pay As You Earn (PAYE) and deduct tax and Class 1 NICs on income received by workers in relation to services provided through the MSC – and the rules for tax relief for travel expenses will be the same as for other employed workers.

This will protect the Exchequer and ensure a level playing field for compliant businesses and workers.

The Intermediaries legislation (also known as “IR35”) will remain in place for Personal Service Companies.

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Other anti-avoidance measures

Disclosure Regime – tackling non-compliance

Budget 2004 introduced a disclosure regime that has enabled the Government to respond to avoidance more swiftly and in a more targeted fashion. In order to ensure that the regime functions consistently, the Government will consult on a new power to investigate a scheme where there are reasonable grounds to believe that a promoter has failed to comply with its statutory disclosure obligations.

A targeted anti-avoidance rule for capital losses

The Government announced that schemes designed to enable individuals, trustees and personal representatives to gain a tax advantage from contrived capital losses are now closed. A targeted anti-avoidance rule will ensure that allowable capital losses are restricted only to those arising from genuine commercial transactions.

Stamp duty land tax – closure of avoidance schemes

Measures to counter avoidance of stamp duty land tax have made ineffective a number of schemes involving the use of leases, partnerships and sub-sales, that were formerly being exploited in an attempt to avoid paying stamp duty land tax.

Taxation of companies – closure of avoidance schemes

The Government announced measures to tackle artificial schemes, brought to light under the disclosure rules. These schemes were used by companies to avoid tax by exploiting certain aspects of legislation, including the rules on manufactured payments, exchange gains and losses, annual payments, double taxation relief, lease and leaseback and controlled foreign companies (the public quotation exemption).

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The Government has strengthened its strategy for tackling Missing Trader Intra-Community (MTIC) VAT fraud in response to a rapid increase in attempted fraud in the latter part of 2005/06 and the first quarter of 2006/07. The number of staff deployed has been increased to over 1400 and they will be focusing on:

  • identifying and prosecuting the criminals behind the fraud
  • working internationally to combat cross-border fraud
  • identifying and tracking those goods most susceptible to MTIC fraud
  • more in-depth checking of suspect repayment claims.

As part of the wider international strategy, negotiations are continuing with European partners to secure a derogation necessary to introduce reverse charge accounting for goods most commonly used in the fraud.

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